Perspective on India Vs. China – BPO War

“It doesn’t matter whether the cat is black or white, as long as it catches mice,” was the statement by one of the most powerful man of China in last century-Deng Xiaoping. Over the last decade and a half, the world has seen radical transformation in global market place. The transition from socialism to capitalism has given way to 3 billion people to the global market, indeed, a great thrust to International economy. Today, it does matter whether cat is black or white and which mice it catches.

India vs. China – can be described as Second Cold War not for military hegemony but for economic supremacy.

India in last decade has capitalized on its skilled human resource pool and has become the czar of Information Technology. Since early 1990’s, Business Process Outsourcing a compatible next step of IT wave swung India. Today, India is the hub for process outsourcing, especially from US and UK. China, on other hand is rapidly moving up in popularity. A recent report indicates that two years from now 200,000 IT professionals in China will graduate from colleges annually, where as, India produce about 3,00,00 engineers and 1,00,000 IT professionals every year. In next ten years, China will pass India, says some experts. Indian Government acknowledging this fact is adding on the capacity by opening new colleges & Universities. They cannot afford to dilute its strong competitive strength of human capital. India has seen institutes mushrooming up in metros and towns churning out quality BPO work force. These institutes impart training for two to three months on voice & accent, soft skills and other requisite training to work effectively in a BPO organization.

India has linguistic edge over China, with roughly one third of its population – or more than 300 million people – possessing English language capability. India has more people speaking the English language than the US and UK combined.

Second aspect relates to the experience with the scale and deliverability of projects. Indian companies in IT and ITeS space have seen enormous learning in executing global projects. The risk in outsourcing to China is perhaps higher for American and West European companies due to the lack of experience in executing large and complicated projects.

China on the other hand has its competitive strengths over India in cost advantage. The wage rate in china is 40%-50% less than India. Large MNCs are opening their development and back office facilities in China to capitalize on huge and low cost labor pool but majority of the projects in process offshoring lie on the lower end of the value chain. These processes are labor intensive rather than knowledge intensive. Today, China is on the same junction where India was in early 1990’s. China is undoubtedly moving fast. It has witnessed 34% growth rate in IT outsourcing in 2004 but process offshoring figures were comparatively low. On the other hand India has witnessed sharp rise in wage rate which will play as deterrent in long term.

India vs. China -The real success will depend upon the BPO business model. Will it graduate from being a tool for cost advantage? If so, BPO business could be simply replicated by China, which will erode the market share for India. One of the research reports from Gartner says Indian market share is likely to evaporate in offshore business process outsourcing, from its current 80% to about 55% by 2007. Larger chunk will be eaten by China. But this erosion will primarily depend upon how China will sustain its low labor cost in long term simultaneously moving fast on the value chain. Next five years will conclude the debate of offshoring supremacy.

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